Barrick Gold: Pullback Is a Massive Opportunity

Barrick Gold Corporation (ABX) was an under-performer in 2014 and 2015, but the company is off to a stunning start this year as it has shot up over 100% this year. In the most recent quarter, the company missed its EPS as well as revenue guidance. However, the company is working hard to produce industry leading margins in support with its ultimate goal of growing free cash flow per share.

For any mining company, all-in sustaining costs play a very significant role. The mining industry’s version of operating expenses, all-in sustaining costs, accounts for several things, like administrative and general costs, capital expenditures related to the mine upgrades as well as production.

Barrick Gold has been very careful about its capital allocation since the beginning of a sharp drop in gold prices two years ago.
Moreover, despite the slump, Barrick Gold has managed to return cash to stockholders, although the dividend figure has plummeted more than 80 percent throughout the prior five years, whereas, one of the Barrick Gold’s foremost rival, Kinross Gold Corporation (KGC), has terminated its dividend altogether in 2013.

Furthermore, gold prices have surged over 25 percent this year as a low interest rate atmosphere has propelled prices higher.
Barrick Gold: Pullback Is a Massive Opportunity
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However, Barrick Gold is poised to grow further, as it is likely that the drift of low interest rates will carry on as significant central banks worldwide are in support of a low interest rate tactic, which will ultimately aid gold as well as silver prices.

One of the most significant things in which Barrick Gold had a significant lead is keeping its AISC down. In FY14 and FY15, the company successfully managed to enhance its AISC 3.8 percent to offset the slump in gold prices. Another impressive thing about Barrick Gold is its capability to control costs at its core mines. The company’s management projects that the all-in sustaining will be in the range of $660 to $730 an ounce.

Moreover, if the company failed to report low AISC this year, it would still be the leader this year. Thus, Barrick Gold’s margins should improve considerably this year, and if the company manages to bring down its AISC as well, it should see a massive boost in its bottom-line.

Given the positive EPS trends, I think Barrick Gold’s rally still has legs and the stock could move higher in the near future. Thus, I think investors should capitalize on the recent selloff and buy the stock on the pullback.
Published on Aug 29, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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